Sir Mervyn Allister King, GBE, FBA (born 30 March 1948) is Governor of the Bank of England and Chairman of the Monetary Policy Committee. He was previously Deputy Governor from 1998 to 2003, Chief Economist and Executive Director from 1991, and a non-executive director of the Bank from 1990 to 1991.[1]

Bank of England career

King joined the Bank in March 1991 as Chief Economist and Executive Director, having been a non-executive director from 1990 to 1991. He was appointed Deputy Governor in 1997, taking up his post on 1 June 1998. In the same year, King became a member of the influential Washington-based financial advisory body, the Group of Thirty.

I regard it as a compliment to be called an inflation nutter.[citation needed]

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Mervyn King (2007)

An ex-officio member of the Bank's interest-rate setting Monetary Policy Committee since its inception in 1997, Sir Mervyn is the only person to have taken part in every one of its monthly meetings to date. His voting style is often seen as "hawkish", a perspective that emphasises the dangers of inflation rather than focusing on the need for growth. Before becoming Governor, he regularly voted for tighter monetary policy than his colleagues. That pattern has continued in a more muted way as Governor: most notably, he was outvoted opposing the MPC's August 2005 interest rate cut, and in June 2007 was in the minority by voting for higher rates. King's willingness on occasion to take a minority position is unusual among central bank leaders.

It is hard to envisage how boom-bust housing instabilities help the economy's growth path or how rising real prices of housing facilitate British competitiveness in global markets.

In 2003, King expressed his agreement with Alan Greenspan's view that, "It is hard to identify asset price 'bubbles'."[5] His agreement with Greenspan—whom King has referred to as a "great man" who had "an extraordinarily successful quarter century" as Fed Chairman[6]—had came despite a bubble in the US housing market being pointed out as early as August 2002,[7] and an IMF warning about a bubble in the UK housing market in February 2003.[8] Other warnings about the UK housing market were to follow, including from the National Institute of Economic and Social Research in 2004[9] and the OECD in 2005.[10] King himself noted the "unusually large" difference between the RPIX and CPI at the beginning of 2004 (the latter does not include house prices as part of its inflation measure, whilst the former does),[11] and, six months later, that UK house prices had risen "to levels which are well above what most people would regard as sustainable in the longer term", their having increased by more than 20% over the preceding year and more than 100% over the preceding five.[12]

No evidence for a recent bubble [in the UK housing market] is found.[13]

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—Gavin Cameron, John Muellbauer and Anthony Murphy
of Oxford University getting it wrong in July 2006

In 2005, The Economist described the run-up in UK house prices as forming part of "the biggest bubble in history",[14] and, by October 2007—when the UK housing bubble was at its peak[15]—the IMF was reporting that the UK housing market was "overpriced by up to 40 per cent".[16] As noted by the OECD, house-price volatility "can raise systemic risks as the banking and mortgage sectors are vulnerable to fluctuations in house prices due to their exposure to the housing market."[17]

[M]aintaining monetary stability and maintaining financial stability... are the essence of central banking.[18]

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—Mervyn King during a speech in 2004

Sir Mervyn argued that Bank of England policy in the years preceding 2004 had "been similar to that of the Federal Reserve"; Fed policy was described by Greenspan as "mitigat[ing] the fallout [from the bursting of a bubble] when it occurs".[5] The failure by Greenspan and King to tackle the bubbles in their respective countries' housing markets resulted in catastrophic "fallout" when the bubbles burst, resulting in the worst recessions in both countries since the Great Depression.

King had faced accusations[who?] of refusing funding to the Northern Rock Bank, precipitating a run on that bank, a situation not seen in the UK since 1914.[19] King later revealed that it had been the Chancellor, Alistair Darling, not he, who had the final word on refusing the necessary help to Northern Rock.[20]

Martin Wolf wrote in the Financial Times in September 2008 that the monetary authorities of the United States and Britain had turned their populations into 'highly leveraged speculators in a fixed asset'.[21]

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—Robert Skidelsky

In his memoirs, Alistair Darling was critical of King for emphasising "moral hazard"—the doctrine of not saving the banks from the consequences of their own mistakes—instead of rescuing the banks by pumping money into them as the banking-system meltdown occurred in autumn 2008.[22] Despite his refusal to give funding to the retail banks, he retained his job, and submitted in defence to a Treasury Select Committee, (The New York Times, The Financial Times Thursday September 20th 2007) that his actions were on the basis that The Bank of England was the 'lender of last resort' but then subsequently supported all moves to provide funding to those banks which had been nationalised at a cost of hundreds of billions of pounds to the UK treasury and British taxpayer. The apparent U-Turn is underlined by his earlier criticisms of The European Central Bank and The US Federal Reserve for their interventionist policies.

There followed an erosion in the value of sterling against major world currencies, such as the Euro and the US dollar, by as much as 30%.

King took an unusual decision on 24 March 2009, by saying any plan for a second fiscal stimulus by the UK Government had to be done with caution.[23] He is also the first incumbent Governor of the Bank of England to be received in audience by Queen Elizabeth II.[24]

In his Mansion House speech on 17 June, 2009, and contrary to his previous position regarding the Bank's remit as regulator, King criticised Chancellor Alistair Darling for resisting significant changes to the allocation of regulatory responsibilities between the FSA, the Treasury and the Bank, which would have given the Bank greater power to fulfil its role of ensuring economic stability.[25][26][27]

I offer my congratulations to the Chancellor, Gordon Brown, for his... successful pursuit of economic stability—not even Gladstone achieved such stability.[28]

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—Mervyn King during a speech in 2004

King has consistently supported drastic cuts in public spending, and has been criticised for publicly airing such support.[29][30] In November 2009, he told MPs that the then Labour government's intention of halving the deficit over the next five years was insufficient;[31] in April 2010, just before that year's general election, he predicted that the cuts he viewed as necessary would be so severe, and thus so unpopular, that party which won the election—and which would therefore be responsible for instituting the cuts—would "be out of power for a generation";[32] and in May 2010, just days after the Coalition government was formed,[33] King said he had spoken to Chancellor George Osborne and supported his plans to cut spending by a further £6bn within the 2010–11 fiscal year.[31] The Liberal Democrats did not need to be talked around to agreeing to the severity of the cuts.[34]

The regulators around the world have said, and they still maintain this today, and I think they're right, that for the major banks in the world, they have the ability to cope with this crisis—not without losing money, not without losing bonuses and in the case of some individuals not without losing their jobs—but nevertheless, it isn't a threat to the banking system as a whole.[20]

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—Mervyn King, interview in 2007 before the
banking system as a whole demonstrated
its inability to cope less than a year later

In November 2010, it was revealed that some senior staff at the Bank of England were uncomfortable with King's endorsement of the government's public spending cuts, accusing him of overstepping the boundary between monetary and fiscal policy. King's support for the government's cuts are in spite of concerns within the Bank that cutting spending so rapidly could derail the UK's nascent economic-recovery.[31] These revelations led to accusations of King being a "coalition courtier"[35] and of making "excessively political"[36] interventions with regard to UK economic policy.[34]

The accusations were given greater weight after the December 2010 WikiLeaks Cablegate.[37][38] As a result of the WikiLeaks disclosures and David Laws' account of the Tory-Lib-Dem coalition-talks, King was asked by the Political and Constitutional Reform Select Committee to explain why he was seemingly cited in the talks as backing Tory plans to introduce spending cuts this year.[39] King insisted to the Committee that he had committed no breach of his obligations to remain silent during the actual period of the negotiated formation of the coalition;[40] the Committee implicitly accepted King's explanation of events as he is not criticised, nor even mentioned, in their final report.[41]

In an interview with The Daily Telegraph on March 5th 2011, King said that Banks had "put profits before people", that failure to reform the sector could result in another financial crisis, and that traditional manufacturing industries have a more "moral" way of operating.[42]

In a speech to the European Parliament in Brussels on the 2nd of May 2011, King implicitly admitted that the Bank of England had abandoned its remit on inflation and was more concerned with the broader stability of the economy and banking sector: "The economic consequences of high-level indebtedness now would become more severe if rates were to rise," Mr King said. "It is the main reason why interest rates are so low." [43]

^"The global housing boom: In come the waves". The Economist. 16 June, 2005. http://www.economist.com/node/4079027?story_id=4079027. Retrieved 8 March, 2011. "According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history"

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